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Managing your credit card (and credit score) in uncertain times

You can plan and prepare for a lot of best- and worst-case scenarios in life, but the first few months of 2020 have been a sobering lesson in how quickly things can veer off course. The COVID-19 pandemic has resulted in reduced hours, layoffs, school closures, market volatility and a big shift in day-to-day life for millions of people. Emotions and money are inextricably linked, so it’s understandable if you’re feeling on edge about what the future will bring.

You might feel otherwise, but life isn’t completely out of your control. During times of uncertainty, there are steps you can take to anchor your finances, manage your anxiety and prepare for what’s ahead.

Schedule time to focus on finances

Even if it’s just 20 minutes once or twice a week, make it a new part of your (and your partner’s) routine to check in on the state of your finances. By knowing exactly what’s going on, you have more control over your options when life goes off the rails. And by making it an ongoing part of your weekly routine, it breaks down daunting, long-term issues into smaller, more manageable tasks.

Use this time to manage your monthly bills (utilities, phone, internet and cable, credit cards, insurance), rent or mortgage payments, student loans, subscriptions and memberships, and think about what expenses might pop up in the months ahead. It’s also a good time to track progress with managing debt, and to make note of any creditors you need to call if you think you won’t be able to pay a bill next month (more on that below).

Set up a budget

Yes, the B-word. It’s the most echoed piece of basic financial advice, but frankly, it doesn’t feel super helpful if you’re already doing the best you can and still struggling. However, budgeting ties back to having more control and options when you’re aware of the bigger financial picture, and you do need to be realistic about where your money goes.

Track your spending through whatever medium works for you (budgeting app, Excel spreadsheet, pen and paper), spot non-essential purchases, and try to cut back where possible. Be realistic: you might not be able to cut something out of your life entirely, but consider setting up realistic spending limits based on a percentage of what you’re spending now.

Prioritize bills

When it comes to paying bills, create a hierarchy: shelter (rent/mortgage and utilities) and food will be at the top, followed by timely or higher interest debt such as student loans or credit card payments. Check your mortgage lender, cell phone/internet provider, utilities provider or bank’s policies – some are offering payment deferral options during the COVID-19 crisis, so check to see if that’s an alternative route for you. If you foresee having trouble paying your bills, it’s important to get in contact with your lenders as soon as possible to work something out. Phone wait times are notoriously long, so aim to contact your bank at off-hours, see if they have an online chat option, or be prepared to settle in on the couch and wait.

Read our blog: Renting and COVID-19 | What support is available in Canada?

It’s very important to note: While payments may be deferred, interest may still accrue on your mortgage or credit card during that time, so you’ll still be on the hook for that money later.

Manage credit card spending

Remember, you’ll owe interest on top of any amount you don’t pay off in full each month. Setting a budget and keeping your balance under control is vital, especially if you have any authorized users on the card such as a spouse or child. If your budget tracking reveals overspending, try switching to debit and avoid using credit for non-essential purchases.

Cancelling unused gym memberships comes up a lot in budgeting discussions, but if there’s ever been a time to do it, it’s now – a lot of public spaces are closed anyway, so take a look at your credit card bills and cancel non-essential recurring subscriptions or memberships.

Maintain your credit score

Even during hard times, there are a few ways to keep your credit score above water. If you can’t pay off your credit card balance in full, prioritize making at least the minimum payment on time, every month. Being late or missing payments altogether will hurt your credit score in the long term. To help keep track of when bills are due, schedule your payment due dates on your calendar. You’ll also want to reach out to your bank as many are offering credit card deferrals, letting you postpone your minimum payment.

Along with making on-time payments, credit utilization is a significant factor in how your credit score is calculated. If possible, try to keep your card balance under 30% of your total credit limit. Even if you’re tightening up spending and aren’t using a credit card, you don’t necessarily want to cancel it – depending on how long you’ve had the card or if you owe a balance on the card, cancelling a credit card may hurt your credit score.

Your credit score might take a hit during financially hard times, but it’s also important to remember that a credit score can be improved again with time and consistent good habits.

Manage credit card debt

If you make purchases using credit cards and anticipate you might not be able to pay off the balance in full, use whichever credit card you have that has the lowest interest rate first. Typical rewards credit cards charge interest rates of 19.99%, but low interest credit cards offer interest rates as low as 10%-15% on purchases.

You can also consider transferring existing credit card debt to a balance transfer credit card, which offers a promotional interest rate as low as 0% on transferred balances so you can consolidate and pay off debt. However, these low interest rates don’t last forever, shoot back up after around six months, and don’t help you save on new card purchases. Opening any new type of credit card should be done cautiously, and you should be aware of the balance transfer rate and any transfer fees or annual fees before signing up.

Boost your emergency savings

If you don’t have emergency savings, don’t beat yourself up – many people are in the same boat. But you can take it week by week and find little ways to save any money you can spare, even if it’s just $25 or $50 at a time. There’s a lot of advice out there about investing during the market dip, but it’s also a good idea to have money set aside in a savings account that doesn’t fluctuate with the market in case you need to access it quickly.

The government of Canada is also offering support to individuals through its COVID-19 emergency response plan, where you can find information on benefits and special one-time payments, how to file for employment insurance, mortgage deferrals and extended deadlines for filing income tax returns.

The bottom line

When you’re stuck in the middle of a crisis, it can feel like it might never end. But like a bad dream or a bad movie, it will end, life will go on, and the financial world will slowly recover. It’s natural for a crisis to evoke financial regrets about past spending and saving (or lack thereof), as well as anxiety about future bills and employment. But armed with a little focus, regular check-ins and proactivity, it’s also possible to feel more secure about your financial future – whatever the future holds.